Forum Topics SDR SDR FY24 Results

Pinned straw:

Added 2 months ago

SUMMARY

A very good all round operational result - very hard to find fault with it as the business appears to have fired on all CURRENT cylinders.

Smart Platform new capabilities are being progressively rolled out in 1HFY25 - sets the foundation for a good step up in revenue in 2HFY2025.

Focus is now increasing on larger hotel properties vs SDR’s earlier focus on small hotel properties - this opens up the TAM, is a good sign of growing product/platform confidence and will support future revenue momentum given the higher Gross Booking Value of larger hotels

Am very bullish as things are falling into place very nicely.

Thesis of SDR being the dominant platform in small and medium-sized hotels is very much intact and in play with the existing capabilities, and with the promise of more from the imminent Smart Platform capability rollout.

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Market does not seem to have recognised this and prices have fallen to my top up zone of ~$4.90

Topped up today at $4.92 IRL and in SM, with dry powder kept on standby to further top up around $4.60, if prices fall to those levels.

Disc: Held IRL and in SM, High Conviction holding

Financials (all amounts and %’s are YoY comparisons)

Total revenue up 26.0% to $190.7m - while this is shy of SDR’s “medium term” goal of ~30% annual organic growth, it has grown at a fast clip and is before new Smart Platform capabilities are released.

  • Subscription revenue up 18.8% to $122.4m, driven by a 13.8% increase in properties of 5,400 to 44,500 properties
  • Transaction revenues up 41.2% to $68.3m, driven by strong Transaction Product Uptake which increased 41.2% to 26,300 products
  • ARR is up 20.7% to $209.0m
  • Revenue mix is shifting slowly in favour of Transaction Revenue, from 68% Subscription:32% Transaction to 64%:36%
  • Revenue was earned more or less evenly across all 3 regions of APAC, EMEA, North America


Margins have been sustained:

  • Reported margin - 66.7%
  • Underlying subscription GM improved from 83.2% to 85.1%
  • Underlying transaction GM moderated from 34.8% to 32.0% due to product mix, temporary expansion into new segments and acquisition channels - no concerns on this


Underlying EBITDA turned positive from FY23 ($21.9m) to FY24 $0.9m, importantly, this occurred in 2HFY24, reflecting the benefits of operating leverage and cost discipline

LTV/CAC continues to improve on a steep trajectory - 31.7% improvement from 4.1x to 5.4x

  • Customer Lifetime Value improved 8.3% from $22,312 to to $24,130
  • Customer Acquisition Cost (CAC) improved by 18.2% from $5,469 to $4,472


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Rule of 40 performance improved 230%, from 5 to 17, reaching 21 in 2H

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Operating leverage is kicking in as revenue increases - this is very evident in falling product Development Cost despite the intense focus on developing and deploying the new Smart Platform capabilities in the back half of FY2023.

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Balance Sheet

Underlying FCF improved from ($34.0m to ($6.4m)

  • FCF as a % of revenue improved from (22.5%) to (3.4%)
  • FCF positive was achieved in 2HFY24, generating $2.3m or 2.4% of revenue

$72.3m in available funds, which includes $30.0m of undrawn debt facilities

3-Pillar Smart Platform Strategy

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Clear evidence that the SDR platforms are being actively used

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The industry is coming onboard, including the big Global Distributors

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New capabilities appear on track for rollout in 1HFY25 - expect revenue to get a good leg up in 2HFY25 as a result

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Slew
a month ago

Little Hotelier customer

This is purely an observation.

I just spent a couple of weeks helping a friend with a 12-room lodge at the base of a ski resort. It was a challenging time due to the lack of snow, causing bookings to change daily, if not hourly.

Although I didn’t have access to the booking system, my friend sent me screen grabs so I could keep track of the room bookings. I noticed the system was Little Hotelier, but I wasn’t aware that it was a SDR platform at the time.

What I observed was that she managed the operation from her phone, adjusting bookings and rooms as needed. When a maintenance issue arose in one of the rooms, she instantly blocked the room via her phone, the cleaners would update the system if a room didn’t get cleaned etc. I remember thinking that the app she was using must be very user-friendly, but never asked her about it.

I’ll be seeing her in a couple of weeks, so I’d be happy to ask her any questions you might have. She’s only had the business for a couple of years, so my first question would be why she chose this platform or did she inherit it. Any others?

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mikebrisy
a month ago

@Slew great intell!

It would be interesting to hear if she is aware of the Smart Platform coming this year, whether she sees benefits for her business, and whether she intends to sign up. If you draw a blank this time, then it would be good to check back in 6 months.

The thesis being tested is that small operators will use Smart Platform to access capabilities currently only accessible to the big chains.

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@jcmleng and @Wakem , I agree with both of you. I wrote article about the FY24 result for A Rich Life

https://arichlife.com.au/siteminder-asx-sdr-fy24-results-and-smart-platform-strategy/

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Wakem
2 months ago

Thanks very much @Valueinvestor0909 I appreciate the article

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GazD
a month ago

Love this article @Valueinvestor0909 and also the original post @jcmleng

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GazD
a month ago

Love this article @Valueinvestor0909 and also the original post @jcmleng

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Wakem
2 months ago

Thanks @jcmleng i agree and am equally bullish of of SiteMinder. They have consistently delivered what they said they would..

Does anyone disagree?

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mikebrisy
2 months ago

Great write-ups @jcmleng and @Valueinvestor0909. $SDR has been on my watch list ever since @Strawman put it on my radar screen by buying $BTI.

Your notes have been helpful, and now that the data rush of reporting season is behind us (bar a few investor webinars from those who didn’t present to investors on the day), the time has come for a quick deep dive. The pullback to $4.90 could well be opportune.

Has anyone here written a bear case? (@Wakem you won’t find disagreement from me.)

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Chagsy
2 months ago

Do they publish NRR?

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jcmleng
2 months ago

Thanks @mikebrisy . I would also be very keen on a bearish view of SDR to keep my bullishness in check!

Reflecting back, what tipped me decisively into SDR about 13-14 months ago was when it was clear from the Sankar interview (2 interviews back), that SDR used the mother-of-all travel industry diasasters that was Covid, to execute a lot of technical platform work which set the foundation for the new capabilities and thus survived to see the back of Covid, the rest is history. My thesis then, which still remains intact, is that if SDR can survive Covid and thrive, it should be able to deal with anything else that comes its way ...

This is my back-of-envelope view of the SDR risks, to form the basis of a more bearish assessment. Would be good for holes to be poked into these to ensure more there is more robust scrutiny on potential downsides.

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mikebrisy
a month ago

@Chagsy No. Only Monthly Revenue Churn, although having read the definition I am confused as to how they measure it.

My confusion is that they refer to both Recurring Subscription Revenue and Recurring Transaction Revenue as components of ARR.

The appendix also refers to Net Monthly Churn in the second paragraph of the definition.

Has anyone else here understood how these definitions are applied?

I need to get my head around this when I start doing some proper work on this one next week.

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Chagsy
a month ago

Thx @mikebrisy - those are things I am unfamiliar with, which should probably raise a bit of suspicion. I guess if those are their chosen domains to report on then one can at least follow trends which might be more important. But would consider it an orange flag that they don't report in the usual way that SaaS companies do. I don't hold, but am certainly thinking about it.

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Rocket6
a month ago

Thanks guys, some good discussion here. I have been doing some research myself this week. I think bear case might be a strong categorisation, but I have spitballed some initial discussion points for subsequent research to focus on.

  1. Valuation: P/S / revenue multiple of 7x (no P/E multiple as unprofitable). This is not exactly cheap, particularly in comparison to other ideas/holdings at the moment. This is double that of my leading idea at the moment (Smart Parking), which I consider a far more attractive proposition at a cheaper multiple. And that's after share price growth YoY of >60%. Is the comparison relevant? Perhaps not, but I am trying to move more into the domain of less noise (holdings) -- focusing on putting my capital where my best ideas are. The best ideas are often the ones we already own.
  2. Value proposition. Lots of expectation pinned on their Smart Platform rollout. What happens if this doesn't perform as expected? This is new and there is no guarantee their customers will a) benefit as expected and b) that it will be a worthwhile endeavour for SiteMinder. This needs more work on my end.
  3. I don't understand the churn metric -- needs fleshing out. @mikebrisy glad I am not the only one to have raised this point.
  4. Not a fan of the use of ARR as a metric, at least in this instance. @Chagsy agree that this presents as an orange flag. For what it's worth, I think cash intake is probably a better gauge in this case and I will be using that for subsequent research. That said, I do like the separation of transaction vs subscription so we get some insight into where the value proposition is / where customers are spending their cash.

Despite the above, there is lots to like. More work for me to do here. Will definitely be adding to my watchlist and monitoring their progress.

I do think the primary bear case at the moment relates to valuation; still quite demanding and any growth under their guidance (30%) will likely see the share price under pressure.

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mikebrisy
a month ago

@Rocket6 - nice summary of the issues in valuing $SDR.

I particularly agree with your point 2. about expectations resting on the Smart Platform - seems to me ARPU needs a boost, and this is the stated strategy.

On Churn, I sent in my questions to the Investor Relations email on 2nd September, explaining why the definition is ambiguous and why it matters. I also stated I am considering initiating a position, and need this clarity to conclude my research. As yet - no acknowledgement or reponse. I'll give them a week, and then send through a reminder. Will keep us updated here on the outcome.

As this stage in the process, I can't get comfortable with the revenue growth I need to make this an attractive investment, partly because 1) potential slowing # customers growth, 2) lack of clarity on churn and 3) lack of confidence in growing value per customer.

These doubts are as much due to my lack of familiarity with this sector including the other ways customers are digitalising - they do not reflect any informed doubt about this business. It's still right at the top of my short watchlist.

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mikebrisy
a month ago

Investor Relations got back to me with my questions about the defintion of Monthly Revenue Churn (%). In fact, they were reasonably prompt, and it is me who is the slow one in reporting back here!

As a reminder, the question is what are they actually measuring when they report Monthly Revnue Churn (%) (MRC), which then also feeds to their LTV/CAC ratio? I've included the relevant slide from the FY results and the definition from the Appendix, below.

My confusion arose because the definition of MRC in the appendix has 2 paragraphs. One that defines MRC, and then a second that refers to Monthly Net Revenue Churn, with this second term not being reported or referred to anywhere else. I wanted to know whether, in fact, what is reported in MRC is a net metric. i.e. is MRC defined by definition A or B below:

Definition A:

MRC = [Revenue in month N-1 from Customers who discontinue in Month N] / [Total Revenue in Month N-1] x 100%

or

Definition B:

MRC = [ (Revenue in month N-1 from Customers who discontinue in Month N) - (Revenue Upgrades in month N from continuing customers)] / [Total Revenue in Month N-1] x 100%

Here's the answer that came back from IR, provided in full for transparency:

"The way it's calculated is that upgrade revenue is deducted from the revenue generated by the churned customer and this is expressed as a percentage of the equivalent revenue base. 

The reason why it's done this way is because upgrade revenue is transactional in nature (not a fixed monthly fee) and this could cause movement in the churn metric in a way that's inconsistent with our retention performance.  

I would note that the customers who churn are on average smaller properties and generate less upgrade revenue." 


So, they seem to be using Definition B. This seems to be an attempt to represent what is otherwise know as Net Revenue Retention, which some SaaS firms (like $TNE) report on an annual basis.


Why Does it Matter?

I've zeroed in on this issue because I want to understand the quality of the revenue.

$SDR growth in properties under subscription since IPO has been as follows:

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Now, if MRC is 1%, then in a year that's c. 12%.

However, if the reported churn number is reduced by the monthly revenue upgrade to produce a lower net number, and given that "customers who churn are on average smaller prperties and generate less upgrade revenue" then the % of properties actually churning is potentially a lot higher.

Clearly, properties that engage with the platform, use it and embed it into their process, and upgrade over time are much more valuable than "smaller properties" who subscribe but then quickly churn away.

But given that the level of property churn appears to be masked by revenue upgrades, and given that the upgrading properties are likely to have higher revenue bases than new, smaller properties, then it is possible that underneath a seemingly impressive 1% MRC there is a much higher level of % of properties churn.

Overall, this leaves me with a lack of clarity as to the quality of customer growth and revenue growth.

Furthermore, the growth numbers for $SDR are not stellar in the realms of SaaS companies: ARR (+21%), # Propoerties (+14%), Total Revenue (+26%)..... just compare that with some of our ASX favourites.

And the valuation isn't cheap: EV/Revenue (FY25 FC) = 5.85, EV/EBITDA (FY25 FC) = 71 and EV/EBITDA (FY27 Consensus) = 19.


My Investment Conclusion

Although the market consensus for $SDR SP is some 30% ahead of today's SP, I don't have enough conviction in the business model to be able to project revenue growth over the next 5-10 years with sufficient confidence to model a robust set of scenarios and generate conviction about this business. I don't understand the quality of the current revenue growth and so I can't generate a sufficient margin of safety in my models.

I'm going to keep this one on my watch list, and watch the performance over the next two reporting periods.

I'm still very interested, but not interested enough to invest my money. Happy to be proven wrong, of course.


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shearman
a month ago

So I guess that means that they could get -ve churn.

Or they zero it out in that case

But I agree its really just Net Revenue Retention they are measuring - which is -ve so they call it churn.

Whereas we want to see positive NRR

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Mujo
a month ago

Think that's just the nature of small hotels/ serviced apartments going out of business, so yes will be cyclical given the travel industry. I think there's a chance they become the dominant software provider though so still a lot of structural growth ahead and global market. The new products yet to fully launch will be crucial.

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mikebrisy
a month ago

@shearman - agree, negative NRR implies poorer quality revenue to me. (Compared with other successful SaaS players.)

@Mujo - I agree that a lot is riding on the new products. A key value driver will be growing ARPU over time. I am going to stay on the sidelines to see what the ARPU trend looks like once new products are rolled out. There will hopefully then still be ample runway ahead.

Regarding churn, as businesses fail or change hands, and properties are refurbished and rebranded, what happens to the business systems? I guess that depends on whether the property is sold as an independent going concern, in which case the existing subscription might transition over. (I think of the holiday property our family has used on the Sunshine Coast for the last decade. Part of a c. 20-unit development, it changed hands last summer, and the new owner is still using the legacy (antiquated) system). Whereas, if a property is acquired into a chain (however small), then the new owner's systems will be imposed. This dynamic can be very important in enterprise software. For example, consider $WTC. It counts among its clients many of the world's largest logistics firms. For them, a key growth driver is acquiring smaller firms, as the industry is highly fragmented at a regional and national level. Acquired operations then adopt use of Cargowise driven by the parent. So, M&A by $WTC's customers is one key driver of its strong positive NRR.

With 45k existing property subscribers , and assuming there are mayby 0.5m indepedent and small/medium chain properties globally, then the current market penetration of $SDR is c. 10%. But the 90% aren't sitting around waiting for $SDR to come knocking. Having a PMS that integrates to the OTAs is becoming table stakes in hospitality.

Although $SDR may be the market leader, there are a lot of other solutions out there, even if none has a significant market share. Let's assume, based on what the $SDR CEO has said that the next closest to $SDR is 3-4%. I've done a superficial search, and there are a lot of solutions out there - albeit, not as capable at $SDR. When I say "a lot" I mean 50-100+ PMS systems that have some form of OTA integration. So before long, $SDR's prospective new properties will be switching from an existing cloud solution to $SDR's suite of products.

Another threat is whether some of the providers of solutions to the large chains start targeting offerings for the smaller end of the market. That would be a natural evolution of the industry, as well as $SDR evolving their offering to be attractive to larger operators. I'm still learning about the sector, but I think this might already be happening.

So from my perspective there are two barriers: 1) my lack of knowledge of market structure/competitive landscape and conduct and 2) question-marks over quality of revenue. I'm very open to analysis that helps address these questions.

I'd have more confidence about $SDR's longer term trajectory from here if both the magnitude of growth and quality of revenue metrics were stronger. Again, this is only a preliminary view, but for me the open questions are significant, and there are some clues to explaining current performance.

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jcmleng
a month ago

A few points to make in this very good discussion, @mikebrisy I had some previous experience in hotel/hospitality systems many years back, my comments are framed with that background in mind.

Property Management Software (PMS) vs Hotel Management Platform

Firstly, the Property Management System (PMS) is really only 1 piece of the overall hotel systems puzzle, probably the least significant from a value-add perspective. The PMS essentially manages the day-to-day operations of the hotel ie, after the hotel booking is made. SDR’s direct capability for this is the Little Hotel platform, if not wrong. There are lots of PMS’ available, but one of the challenges is that they are mostly targeted for larger properties, so Little Hotel addresses the PMS of the “Little” end of the TAM.

The SiteMinder platform is really a Hotel Management platform for small hotels, of which the PMS is only 1 capability - see below from the SDR website:

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The PMS is thus, not the main game for SDR at all and this is reflected in there being no new capability being developed specifically for the PMS. SDR is thus not competing against other PMS systems and any comparisons and reference to other PMS' is not quite comparing apples-with-apples.

Distribution and Revenue Management/Optimisation Capabilities

The 2 big issues that SDR is addressing for smaller properties are:

(1) Room Inventory Management and Distribution - how to expand the global reach of small hotels via cost effective distribution channels and

(2) Revenue Management & Optimisation - how to optimise room rates, room inventory mix etc to maximise yield and revenue.

Both these capabilities have been out of reach for smaller hotels, especially Revenue Management & Optimisation, usually the domain of the larger properties who may have teams of people and systems to manage this. (Think about how QAN fares and availability keep changing further and closer to the travel date - someone is messing with these in the background all the time to maximise yield and revenue)

This is where the SDR Smart Platform comes in - the 3 capabilities of Dynamic Revenue Plus, Channels Plus and Smart Distribution, come together with Intelligence from SDR’s huge global data, which is where the value is really added for small hotels.

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These are game changing capabilities for small hotels who run super-lean operations because the new Smart platform capability gives small hotels what only big hotel chains can afford in revenue management and distribution. (Think QAN's capability to mess around with fares, seat availability, but for a small 10-room hotel, run by the family, which the SDR platform offers as a new module, which leverages SDR's global data etc).

The more big player Distributors sign up to Channels Plus, the broader and more seamless the distribution of small hotel room inventory. Small hotels benefit from this significantly enhanced reach as they plug once into SiteMinder, which allows their inventory to be distributed by ALL the Distributors already hooked up to Channels Plus vs having to do point-to-point connections to each distributor.

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More importantly, the Smart Platform is the vehicle by which SDR takes a clip of the Gross Booking Value. SDR has clearly outlined from the Sankar SM meetings, that finding ways to monetise transactions that flow through the SDR platform was a key focus - these new capabilities operationalise this objective.

The icing on this cake for me is that SDR is confident enough to go to the Big Hotels with these platform capabilities, who will already have their own distribution channels and revenue management capabilities. As SDR has all along focused on small hotels as its immediate TAM, any inroads into the Big Hotels, could boost transaction revenue significantly as the bigger hotels have higher Gross Booking Values. I am not banking on this in my thesis, but I saw this "ballsy" move as a sign of management confidence in SDR's vision and execution of that vision.

Back to the PMS

Note that none of the capabilities above talk about improvements to the PMS itself, which is where I have formed the view that the PMS in itself, is not SDR’s focus. I think this is because the PMS itself has very little transaction monetising opportunities - the functionality is mostly about room management, maintenance, F&B billing, room folio/billing etc, the “boring stuff”.

SDR is instead focused on Pay and Demand Plus, which are add-on payment-related capabilities - see below. These allow SDR to take a clip of the payment processed through the SDR platform via these capabilities, thus providing another transaction revenue stream.

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SUMMARY

I really cannot see these capabilities failing as it addresses almost total white space, in an integrated flywheel-way, particularly for small hotels which simply are not big enough to be able to afford and manage the sophisticated software and more importantly, people, to perform these functions.

The issue/risk will be how well SDR executes and deploys the capabilities - if it gets it really right upfront, then uptake will be swift. If the execution misses the mark somewhat, then uptake will be slower while they fix things to get it right. SDR is mitigating this by adopting a build-pilot-refine approach, which minimises the risk of poor execution. The increasing number of big distributors signed up is also a good sign of confidence that Channels Plus will take off.

These capabilities also open up multiple revenue streams for SDR - add on subscription fees, plus the multitude of transaction revenue streams based on Gross Booking Value. The platform today already has sufficient scale for fairly immediate strong uptake of these new capabilities - SDR has flagged early indications of these in the last update.

I suspect that the analysts have not quite got their heads around how game changing these new capabilities really are to small hotels, and potentially big hotels as well, and how to value it. They are really quite visionary from my perspective, but you will need to have spent some time in hospitality to clearly see this.

Hoping this shines a different light on SDR. The issues, the big picture, the vision and the execution against the vision all make very good sense, are game changing and hence, very exciting. Once hotels see and buy into the vision, everyone wins - the Hotel, the Distributors and SDR. This can only mean good things for us shareholders ...

Discl Held IRL and in SM, High Conviction Holding

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mikebrisy
a month ago

@jcmleng thanks for sharing your industry insider experience and perspective. You clearly explained why so much expectation is attached to the Smart Platform, and I do recall Sankar’s remarks about adoption of SP leading to a step up in transaction revenue.

The key point I now realise I had drawn a false equivalence on was on OTA integration: point to point vs. connecting to the universe. So thanks for highlighting and, of course, Sankar explained that but I overlooked the point when doing my market scan.

Given the SP launch schedule, we’ll probably only see some leading indicators at 1H25, with early signs of any changes in trajectory at FY25. If Smart Platform is the gamechanger, then there should be a clear upwards inflection in transaction revenue in H2FY25 over the PCP. So that will be the key measure I’ll look to in a year’s time! What would be really good is if Sankar calls out the monthly ARPU uplift for customers using SP. And if it really takes off, then FY26 over FY25 should be huge, so I intend to see if it’s possible to make the early call during or at end of FY25.

Of course, investors like you who call it early will make the super returns! But the great thing about global, game-changing SaaS rollouts is that there is usually time for laggards like me to get on the bus later and still have a good ride.

It will be very interesting to see what the rate of adoption is within the existing customer base. Marketing new features to existing customers is a much lower cost activity than reaching new customers.

Once more, thanks for your patient explanation! I feel that I have some clearer markers to track in this one.

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